Tag: Motley Fool

Once a week I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because I believe it is well worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Flight Centre Travel Group Ltd (ASX: FLT) takes the crown on the most shorted list for another week after its short interest rose to 17.1%. The market remains incredibly divided on the travel sector recovery with some companies predicting growth on 2019’s numbers and others predicting declines in 2022.
• Betmakers Technology Group Ltd (ASX: BET) has seen its short interest rise to 13.6%. Short sellers will have been pleased to see this betting technology company’s shares crash to a two-year low last week. Loss-making tech shares are out of favour with the market right now.
• Nanosonics Ltd (ASX: NAN) has short interest of 12.4%, which is up week on week. This medical device company’s shares have been sold off this year due to uncertainty caused by a major change to its sales model in the United States.
• Kogan.com Ltd (ASX: KGN) has seen its short interest climb again to 10.3%. This ecommerce company continues to be a target of short sellers due to its poor sales performance, strong competition, margin pressures, and its dire inventory management.
• Polynovo Ltd (ASX: PNV) has seen its short interest remain flat at 10%. Valuation concerns have been weighing on this medical device company’s shares. Though, clearly a couple of insiders don’t agree that PolyNovo’s shares are overvalued. Last week the company reported some major insider buying.
• EML Payments Ltd (ASX: EML) has seen its short interest jump to 10%. Short sellers have increased their positions in this payments company after it downgraded its profit guidance following a tough third quarter.
• Webjet Limited (ASX: WEB) has short interest of 9.3%, which is down week on week once again. As with Flight Centre, mixed messages out of the travel sector appear to have short sellers believing that the market is too bullish on the sector recovery.
• AMA Group Ltd (ASX: AMA) has 8.9% of its shares held short, which is up week on week. Short sellers aren’t giving up on this smash repair company despite its shares hitting a two-year low last week. Its high debt load and dwindling cash balance are weighing heavily on sentiment.
• Appen Ltd (ASX: APX) has returned to the top ten after its short interest rose to 8.9%. Concerns over softening demand for its services and a lack of guidance for FY 2022 appear to have attracted short sellers.
• Zip Co Ltd (ASX: Z1P) has seen its short interest fall to 8.25%. This buy now pay later provider’s shares have fallen out of favour with investors amid slowing growth and rising costs.

The post These are the 10 most shorted ASX shares appeared first on The Motley Fool Australia.

More reading

• Over 20 million new Zip shares will soon be available to trade. What does this mean for the share price?
• Top brokers name 3 ASX shares to sell next week
• Why BrainChip, Coles, Fisher & Paykel Healthcare, and PolyNovo shares are rising
• Why is the Zip share price making a partial recovery this afternoon?
• PolyNovo share price jumps despite the market selloff amid heavy insider buying

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Appen Ltd, Betmakers Technology Group Ltd, EML Payments, Kogan.com ltd, Nanosonics Limited, and POLYNOVO FPO. The Motley Fool Australia has positions in and has recommended EML Payments, Kogan.com ltd, and Nanosonics Limited. The Motley Fool Australia has recommended Betmakers Technology Group Ltd, Flight Centre Travel Group Limited, and Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/d4lWunG

The AUB Group Ltd (ASX: AUB) share price won’t be trading till tomorrow as it undertakes a capital raise to fund an $880 million acquisition.

The insurance broker called for the trading halt and announced the takeover of Tysers. The London-based target is the sixth-largest wholesale broker in the Lloyd’s marketplace with $3.6 billion in annual gross premiums.

The cash and scrip offer will be partly funded through a fully underwritten $350 million equity raising. The raising is made up of a $71 million share placement to institutional investors.

The balance will come via a 1-for-5.2 pro rata accelerated non-renounceable entitlement offer to existing shareholders.

AUB shares on watch as it undertakes cash-scrip acquisition

Tysers owners, Odyssey Investment Partners, will be given $176 million worth of AUB shares as part of the transaction. The shares will be escrowed for 24-months.

AUB will also take on a new $675 million new debt facility to replace its existing $250 million facility. This will leave the company with $74 million in unused debt post the acquisition.

Strategic rationale

Management says that the acquisition is consistent with its strategy to expand its international offering, build economies of scale and capture more of the brokering value chain.

AUB added that Tysers will strengthen its competitive position. The target’s specialist capabilities will enable AUB to design and offer market-leading products for AUB’s broker and agency network and to enhance the ability to establish new agencies and secure Lloyd’s binders.

AUB acquisition could hit $1.06 billion

The $880 million offer price could go up by another $176 million (earnout) if Tyser hits certain targets. But ignoring the earnout, the price tag for Tysers reflects a circa 12 times enterprise value to FY22 pro forma earnings before interest, tax, depreciation and amortisation (EBITDA).

However, if you include the forecast annual run-rate synergies from the merger of around $25 million, the multiple drops to around 9 times.

In other words, AUB believes the acquisition will lift its underlying earnings per share by 30% with the synergies.

The synergy assumptions are made up for cost savings and improving margins on current premiums to be fully realised after 18 months.

On sale of assets

In the wake of the acquisition, AUB intends to sell a 50% stake in Tysers’ UK Retail division to PSC Insurance Group Ltd (ASX: PSI). PSC, a 50/50 joint venture partner with AUB, will purchase the asset on the same multiples and commercial terms.

“Lloyd’s is the largest insurance market in the world. Tysers provides AUB Group the ability to access a diverse range of risks and insurance types for our clients and broker networks in Australia and New Zealand whilst also gaining the capability to accelerate the establishment of new agencies in these markets,” said AUB chief executive Mike Emmett.

“Clive Buesnel, Tysers CEO, is a highly respected insurance executive in the Lloyds and London market, and we are delighted to welcome him and the Tysers team to the AUB family as we embark on a new chapter for both AUB Group and Tysers.”  

The post AUB share price halted amid $880 million acquisition appeared first on The Motley Fool Australia.

More reading

• 2 ASX shares that were dogs last month but good to buy now: expert

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended PSC Insurance Group. The Motley Fool Australia has recommended Austbrokers Holdings Limited and PSC Insurance Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/MClDaJv

The ASX share market is seeing a lot of volatility right now. Could the National Australia Bank Ltd (ASX: NAB) share price be an opportunity?

On Friday, the S&P/ASX 200 Index (ASX: XJO) suffered one of its worst days in the last two years.

NAB shares fell on Friday as well. But, at the time of writing, the bank has gone up around 7.5% since the start of the year.

Last week, NAB reported its FY22 half-year result, and it managed to achieve growth. Before getting to the broker ratings on the bank, let’s look at how the bank performed.

Earnings wrap

NAB reported a statutory net profit after tax (NPAT) of $3.55 billion. The cash earnings rose 4.1% to $3.48 billion. Revenue rose by 4.6%, benefitting from “pricing discipline and strong growth in lending and deposits which were up 10% and 12% respectively” compared to the prior corresponding period.

The bank has been investing to deliver productivity benefits. It said that it has reset its FY22 cost growth target to approximately 2% to 3% to ensure it drives shareholder returns while balancing cost disciplines and growth opportunities. Indeed, the NAB share price is up 18% since this time last year.

NAB said that net interest margin (NIM) declined 11 basis points to 1.63%. However, excluding the impact from markets and treasury, and higher holdings of liquid assets, the NIM declined by 3 basis points. NAB said this reflected competitive pressures and “mix issues” in housing lending, partly offset by lower deposit and funding costs.

The bank’s credit impact charge was $2 million. However, NAB did say that it’s seeing improved asset quality across Australian lending exposures and low specific charges. The ratio of loans that are more than 90 days past due fell 48 basis points to 0.75%.

NAB’s board decided to declare an interim fully-franked dividend of 73 cents per share, up from 60 cents per share. At the current NAB share price, its current grossed-up dividend yield is 6.1%.

Regarding its outlook, the bank said:

We are optimistic about the future and well-positioned for an evolving environment in FY22 and FY23. Disciplined execution of our strategy and investing to deliver better customer and colleague outcomes remain our key focus to allow us to drive sustainable growth across our business and improved returns for shareholders.

Is the NAB share price a buy?

Brokers are somewhat mixed on the business.

Ord Minnett currently rates NAB shares as a buy, with a price target of $34.50. The broker thought the result was good.

Morgan Stanley is currently ‘equal-weight’ on the big four ASX banks, with a price target of $31.80.

Credit Suisse is neutral on the NAB, with a price target of $32.40. While NAB should be a beneficiary of interest rates increasing, the broker noted that NAB is expecting to report growth in expenses.

The post Is the NAB share price a buy amid this volatility? appeared first on The Motley Fool Australia.

More reading

• Is it too late to buy big bank ASX shares?
• 5 things to watch on the ASX 200 on Monday
• These were the best performers on the ASX 200 last week
• These were the worst performers on the ASX 200 last week
• Here are the top 10 ASX shares today

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/9rOjsaI

Could the Woolworths Group Ltd (ASX: WOW) share price be an opportunity as the ASX supermarket share deals with the current inflation environment?

The business has had a lot of to deal with over the last two or so years. The COVID-19 panic buying was a challenge in 2020 and the company has had to significantly scale its e-commerce capabilities.

Woolworths is now dealing with supply chain challenges and inflation.

In the three months to 31 March 2022, Woolworths said that there was a return to COVID-related shopping behaviour in the early part of the quarter, which led to higher in-home consumption in the food businesses along with rising food inflation.

Quarter recap

Australian food sales increased by 5.4% in the third quarter, with Woolworths retail sales increasing by 5.2%. Average prices increased by 2.7%, reflecting “widespread industry cost pressures.” E-commerce sales growth remained “strong” at 38.1%, despite COVID and flood-related disruption resulting in sales penetration of 9.9%.

Australian business to business sales increased by 217% largely driven by PFD and Endeavour Group Ltd (ASX: EDV) partnership revenue not included in the prior year.

New Zealand food total sales increased by 3.8% despite lower item growth, with average prices increased by 3.6%. E-commerce sales increased by 18.3%.

Big W sales declined by 3.5%. This was comparing against 18.3% growth in the prior year.

Woolworths said that trading momentum in the fourth quarter to date has continued in Australian food and Big W with “strong Easter seasonal trade.” However, COVID impacts are expected to affect the FY22 second half earnings before interest and tax (EBIT) with a forecast range of between NZ$120 million to NZ$140 million, representing a decline of 16% to 28% compared to the second half of FY21. Those impacts and costs are largely associated with keeping the “customers and team safe and minimising disruption” to the supply chain.

It has been reducing its direct COVID costs in areas where it’s no longer required.

Woolworths acknowledged the cost-of-living pressures that are being felt by customers and the team. It’s supporting the position for an increase in team member wages that keeps pace with underlying cost-of-living increases.

Could the Woolworths share price be a buying opportunity?

Brokers are quite mixed on the business at the moment.

UBS currently rates Woolworths as sell, though the price target is only $36. It notes that suppliers are wanting to pass on costs and price increases. However, it’s Coles Group Ltd (ASX: COL) which is the broker’s pick in the sector.

Credit Suisse also has a negative rating with a ‘underperform’ rating with a price target of $33.89. This broker thinks that elevated COVID-19 costs are a drag on Woolworths.

However, on the positive side is Ord Minnett with a price target of $40. It likes it as the market leader and it is able to pass on higher costs to shoppers with higher prices.

Valuation

Ord Minnett thinks the Woolworths share price is valued at 33x FY22’s estimated earnings and 39x FY23’s estimated earnings.

However, Credit Suisse thinks that Woolworths shares are valued at 33x FY22’s estimated earnings and 29x FY23’s estimated earnings.

The post Is the Woolworths share price good value right now? appeared first on The Motley Fool Australia.

More reading

• Which ASX supermarket shares could win (and lose) as higher inflation hits shelves?
• Here’s how the Woolworths share price stacked up in April
• Analysts name 2 blue chip ASX 200 dividend shares to buy
• 5 things to watch on the ASX 200 on Wednesday
• Here’s how some of the biggest ASX 200 shares are responding to the RBA’s rate rise

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/iJXVxwU

Three large parcels of Zip Co Ltd (ASX: ZIP) shares will soon be able to hit the market after their escrow period ends.

That means millions more shares in the buy now, pay later (BNPL) giant will be available to trade, potentially impacting their value.

At the time of writing, the Zip share price is $1.04, nearly 76% lower than it was at the start of this year.

For context, the S&P/ASX 200 Index (ASX: XJO) has slipped 5% over the same period.

Let’s take a look at why more Zip stocks are coming out to play and what that could mean for the company’s share price.

Millions of Zip shares to be released from escrow

More than 22 million Zip shares might soon flood the market after they are released from voluntary escrow agreements.

Escrowed shares are normally issued as part of a capital raise or acquisition. They are restricted from trading for a certain amount of time after being handed out.

Three packages of Zip shares will be released from their limbo over the coming weeks. The first will be able to hit the market this week.

More than 7.45 million ordinary shares in the BNPL star will be released from escrow on Thursday.

Another second package – more than 1.5 million shares strong – will be able to be traded from 23 May.

Finally, more than 13.2 million shares will be released from escrow on 1 June.

The shares were issued to help pay for notable acquisitions undertaken by Zip over the last two years.

The first package was issued as part of Zip’s acquisition of Twisto Payments in November.

The second helped pay for the company’s purchase of Spotii in May.

The largest package was issued as part of Zip’s milestone acquisition of Quadpay in 2020.

It’s important to note the stocks’ release from escrow doesn’t mean they’ll be up for grabs anytime soon.

Though, if they are sold on-market, the rule of supply and demand suggests the Zip share price could suffer.

It’s also worth pointing out that the shares to be released from escrow were worth between approximately $3.75 and approximately $7 apiece at their time of issuance.

Thus, their owners might not be enthusiastic about selling their holdings at the current Zip share price.

The post Over 20 million new Zip shares will soon be available to trade. What does this mean for the share price? appeared first on The Motley Fool Australia.

More reading

• Why is the Zip share price making a partial recovery this afternoon?
• Why ARB, AVZ, Temple & Webster, and Zip shares are sinking
• The Zip share price is plunging 9% today. Here’s why
• Leading brokers name 3 ASX shares to sell today
• Why Block, Domain, Metcash, and Zip shares are pushing higher

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/yJXSaTn

On Friday, the REA Group Limited (ASX: REA) share price was sold off following the release of the property listings company’s third-quarter update.

The company’s shares were down as much as 9% to a 52-week low of $110.68 before recovering slightly to end the week at $112.15.

This means the REA share price is now down 35% since the start of the year.

Is the weakness in the REA share price a buying opportunity?

One leading broker that believes investors should be taking advantage of this weakness is Goldman Sachs.

According to a note from this morning, the broker has reiterated its buy rating with a trimmed price target of $164.00.

Based on the current REA share price, this implies potential upside of 46% for investors over the next 12 months.

What did the broker say?

Goldman Sachs acknowledges that REA missed its third-quarter estimates last week due to a greater than expected deterioration in the macro trends.

However, its analysts feel investors should look beyond this. They believe this is a short term headwind that will eventually turn into a tailwind for growth in the future.

The broker explained:

“REA revenues were -7% vs. GSe, given a greater than expected deterioration in the macro trends across its Rental (GSe c.10% of revenues) and Commercial and Developer businesses (14%) during the quarter. This offset the estimated +24% growth in its Residential ‘For-Sale’ business (+11% volume, +8% price and +5% depth).

Although this weakness is impacting FY22 earnings, as it relates to macro factors that will ultimately normalise in future periods, we believe it is only timing related, and will provide another tailwind to growth in future periods that will be impacted by macro weakness in ‘for-sale’ listings.”

Furthermore, the broker believes there are other tailwinds that will be supportive of strong future growth.

“When combined with continued pricing tailwinds and strong depth uptake (across existing and new products), we remain positive on REA’s ability to deliver sustainably strong earnings growth – forecasting +8% growth in FY23 (impacted by for-sale listings/India), accelerating to +11% in FY24.”

All in all, the broker feels this makes the REA share price a very attractively priced option at the current level.

The post Following months of selling, top broker tips 45% upside for the REA share price appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• Why Macquarie, REA, Temple & Webster, and Xero shares are sinking
• ASX 200 midday update: Macquarie and REA updates disappoint
• REA share price sinks 9% to 52-week low following Q3 update
• Buy these 2 impressive ASX shares in May 2022: experts

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/mkgTjqZ

If you’ve been keeping up with the share markets in recent months, you’ll already know the banks have done very well.

Banks and the miners have carried the S&P/ASX 200 Index (ASX: XJO), often dragging it back to moderate losses on days when other sectors have burned to the ground.

In fact, since the COVID-19 Omicron variant reared its head in late November, the S&P/ASX 200 Financials (ASX: XFJ) has gained more than 5.5% while the ASX 200 has lost 0.5%.

And with the Reserve Bank raising the cash rate last week, and expected to do so again multiple times this year, banks have plenty of reason to cheer.

So, as investors, is it too late to jump on the banking bandwagon? Are those shares worth buying now?

Switzer Financial director Paul Rickard, who made his name once as an executive at Commonwealth Bank of Australia (ASX: CBA), answered this question.

‘Most of the run is behind them’

Rickard told Switzer TV Investing that it’s not too late to buy big bank shares, but only if you set your expectations low.

“I think the best and most of the run is behind them,” he said.

“Sure, they’re going to win from higher interest rates now… That’s going to effectively allow them to improve their so-called ‘net interest margin’.”

Net interest margin is the difference between the lending interest rate (income for the bank) and the deposit interest rate (expense for the bank).

Australian banks often benefit from cash rate rises because they immediately pass on the full effect to borrowers but forward very little, if at all, to deposit holders.

So this expands their net interest margin.

Too much of a good thing could make one vomit

This scenario seems like a simple win for the banks, but Rickard warns that repeated rate rises could backfire.

“What people have got to be careful of is ultimately higher interest rates slow the economy down. They slow borrowing demand down, which makes volume growth harder,” he said.

“Then in the longer term, if [rates] stay high for a long term, borrowers find it harder to repay.”

Right now, according to Rickard, the big banks are in the best position in years in regard to bad debts and loan defaults.

This is because of the combination of historically low rates and generous COVID-19 provisions.

“Banks have been huge winners of over-providing in COVID-19 and writing it back,” said Rickard.

“Yesterday Australia and New Zealand Banking Group Ltd (ASX: ANZ) reported negative bad debts… Today National Australia Bank Ltd (ASX: NAB)’s total bad debts are $2 million.”

So all this means is that the bad debt total can only get worse from here for all financial institutions.

You won’t get another $18 rise

Rickard advised that if investors buy into bank shares now, they need to expect significantly less return than the spectacular rises seen in the past year or two.

“National Australia Bank, to give some context here, was $14 in March 2020… and today it’s $32,” he said.

“I don’t think [investors] are going to get another $18 out of them.”

The best shareholders could hope for from here is single-digit gains, according to Rickard.

“Mainly because they are struggling still to grow revenue and that’s still their fundamental problem.”

The post Is it too late to buy big bank ASX shares? appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• Top brokers name 3 ASX shares to buy next week
• These were the best performers on the ASX 200 last week
• These were the worst performers on the ASX 200 last week
• Own CBA shares? Here’s what to expect when the bank reports next week

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/gTHWFGy

The Westpac Banking Corp (ASX: WBC) share price will be one to watch on Monday.

This follows the release of the banking giant’s half-year results this morning.

Westpac share price on watch amid profit decline

• Revenue down 8% year on year to $10,230 million
• Operating costs down by 10% or $624 million to $5,373 million
• Cash earnings of $3,095 million, down 12% over the prior corresponding period
• Cash earnings per share down 12% to 85.4 cents
• Net interest margin down 15 basis points to 1.91%
• CET1 ratio of 11.3%
• Fully franked interim dividend of 61 cents per share

What happened during the first half?

For the six months ended 31 March, Westpac reported an 8% decline revenue to $10,230 million.

And despite reducing its operating costs by 10% to $5,373 million, this couldn’t stop the bank from reporting a 12% reduction in its cash earnings to $3,095 million. This was driven largely by poor performances from Westpac’s Consumer and Business segments.

The Consumer segment, which is the bank’s largest segment, reported a 15% decline in cash earnings to $1,646 million. This reflects a lower net interest margin and reduced credit impairment benefits, which offset a 3% increase in mortgages. Westpac advised that its Consumer margins were 25 basis points lower due to continued competition and portfolio mix changes including more fixed rate lending and lower card and personal loan balances.

The Business segment reported a 55% decline in its earnings to $239 million. This was due to a turnaround in impairment charges from a benefit to a charge and a 53 basis point (35 basis points excluding notable items) decline in margins. The latter reflects an increasingly competitive market and low interest rates.

The Westpac Institutional Bank was a positive performer and delivered a 3% increase in cash earnings to $306 million. This was driven by a 17% increase in lending and a 19% reduction in expenses, which was partly offset by lower loan spreads and widening counterparty credit spreads.

The Westpac New Zealand segment reported a 9% increase in cash earnings to NZ$635 million. However, this was driven by a profit on the sale of Westpac NZ Life. Excluding notable items, cash earnings fell 15% due to lower impairment benefits.

Finally, the Specialist Businesses segment delivered a 13% increase in cash earnings to $132 million. Though, once again, excluding notable items, cash earnings would have been down 41%.

Management commentary

Westpac’s CEO, Peter King, remains upbeat on the Australian economy despite the challenges it faces. He said:

The first half of 2022 has been challenging for many customers. Floods, the lingering effects of the pandemic and the impact of the war in Ukraine have set many customers back and created uncertainty. However, the Australian economy is robust.

Consumer spending may be tempered by higher prices and higher interest rates. However, the positives of strong household and business balance sheets, combined with the continued reopening of international borders and local economies, will likely increase economic activity.

We expect the Australian economy to expand by 4.5% in 2022 but slow to 2.5% in 2023. Credit growth is forecast to be a strong 5.7% in 2022 slowing to 4.3% in 2023.

Mr King also spoke briefly about the housing market, which he notes has already started to show signs of cooling as rates rise. The CEO was also quick to point out that the bank and its customers are prepared for higher rates.

Demand for housing has already shown some signs of easing and rising interest rates are expected to contribute to a moderation in house prices next year. As the economy moves into the rising rate cycle, it’s important to remember that rates are moving from a very low base and we already assess loan applications on higher rates, consistent with regulatory requirements.

Finally, Mr King laid out his plans for the bank’s future, with Westpac focusing keenly on its Fix, Simplify and Perform strategy.

We will continue to deliver on our Fix, Simplify and Perform priorities. The CORE program is delivering to plan and improving our risk management capability. Our portfolio simplification is making the bank simpler.

The next big step is exiting super and platforms and we are well progressed. To improve performance, we are digitising customer journeys, improving customer service, growing in our core markets and resetting the cost base. Together these things are critical to delivering for our people, customers and shareholders.

How does the result compare to expectations?

According to a note out of Goldman Sachs, its analysts were expecting Westpac to report cash earnings of $3,146 million, a net interest margin of 1.82%, and a fully franked interim dividend of 60 cents per share.

This means that the bank has missed on its cash earnings but beaten on its net interest margin and dividend.

Another positive that could be supportive of the Westpac share price is that the bank has reiterated its bold cost reduction target despite two of its peers abandoning their own targets last week. Westpac continues to target a cost base of $8 billion by FY 2024.

The post Westpac share price on watch amid half-year profit slide appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• Own Westpac shares? Here’s what to expect from the bank’s half-year results
• Why ASX 200 bank shares are in the spotlight
• Here’s how some of the biggest ASX 200 shares are responding to the RBA’s rate rise
• The ASX 200 shares that fund managers are buying and dumping

Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/qrbYP9B

After seeing supermarkets slash prices for a decade to lure customers, grocery shoppers will find the current inflation surge jarring.

At the start of the year there were already supply constraints triggered from the COVID-19 pandemic. 

But just a few months later, price rises caused by recent floods in the eastern states and global shortages arising from the war in Ukraine have added to the inflation pile-on.

Inflation is raging sufficiently that Reserve Bank of Australia last week raised interest rates by 25 basis points.

Montgomery Investment Management portfolio manager Stuart Jackson forecasts that a certain subset of food retailers will benefit.

“This ‘new normal’ should play well for the value end of food retailing,” he said on the Montgomery blog.

“The biggest loser is likely to be Metcash Limited (ASX: MTS) and independent specialty stores.”

Why Coles will be a winner from inflation

Out of the other ASX-listed supermarkets, Jackson picked Coles Group Ltd (ASX: COL) as the winner.

He noted the data coming out of Coles’ latest 13-week sales report last week.

“Coles stated that it is now seeing price inflation in almost every category,” said Jackson.

“As a result, overall food inflation increased from -0.2% in the December quarter of 2021 to 3.3% in the March quarter of 2022.”

But food inflation was “fairly benign” until now, and the real painful price increases are underway in the current quarter.

“The majority of product prices have not increased in Coles as yet… But the inflationary pressure on suppliers is increasing, not decreasing,” said Jackson.

“Rising input and logistics costs are forcing manufacturers to push through price increases to retailers. This is now seeing price inflation on a fairly broad basis.”

And historically, food inflation has led to improvements in supermarket earnings and margins.

There are three ways supermarkets deal with supplier cost increases: absorb the inflation, increase dollar-for-dollar (therefore decrease margin percentage), or increase by the same margin percentage.

According to Jackson, Coles would push through the majority of its price hikes through the second method.

“Therefore, there is likely to be some dilution of gross margin percentage from the current inflationary wave,” he said.

“However, this will be offset by continued efficiency gains under the ‘Smarter Selling; and strategic sourcing programmes.”

The Coles share price is already up 4.3% so far this year, while paying out a 3.27% dividend yield.

Why Metcash will be a loser from inflation

Jackson admitted Metcash’s IGA chain benefited the past two years from a shift to shopping locally.

But he feels like this is temporary pandemic-induced behaviour that will soon subside.

“What is likely to be a key driver of consumer shopping patterns is increasing pressure on household budgets from accelerating food inflation,” said Jackson.

“This should see consumers become increasingly more budget and price sensitive, with a shift back to fewer but larger shops.”

And as supply constraints improve in the coming months, smaller players like IGA will find it increasingly difficult to lure customers away from the big chains like Coles and Woolworths Group Ltd (ASX: WOW).

“The restrictions on product availability also reduced promotional intensity by around 300 to 400 basis points for supermarkets,” Jackson said.

“As availability recovers, promotional activity by the major supermarkets will return to more normal levels, increasing the perceived value proposition of the two major supermarket chains.”

Metcash shares are 4.92% higher than where they started this year, all while paying out a handsome 4.26% dividend yield.

The post Which ASX supermarket shares could win (and lose) as higher inflation hits shelves? appeared first on The Motley Fool Australia.

More reading

• 2 buy-rated ASX dividend shares for income: experts
• Why BrainChip, Coles, Fisher & Paykel Healthcare, and PolyNovo shares are rising
• Guess which ASX 200 shares are defying today’s sell-off to climb higher
• Could these 3 ASX dividend shares still beat the piggybank if rates hit 2.5%?
• Here’s how the Woolworths share price stacked up in April

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/p3KkPIL

There might be many differing opinions about where ASX shares will head, but there seems to be consensus on one thing: it will be a volatile ride.

According to a Wilsons memo to clients, stock markets have been stressed since December after a transition in investor attitude.

“Risk aversion in equity markets has shifted as inflationary pressures and higher bond yields have placed downside pressure on equity valuations.”

Since then, the war in Ukraine plus a surge in oil and food prices have really poured petrol on the inflation flame.

“As the risks of rapid [monetary] tightening and the Ukrainian conflict play out, Australian equity markets will remain susceptible to volatility although Australian equities are proving relatively resilient compared to global equities.”

Considering this, what are some of the ASX shares that the team at Wilsons reckon are the best ones to hold at the moment?

‘Defensive growth’ is the answer

To answer this, Wilsons analysts note how the mood has changed ever so slightly over the last few weeks.

“The narrative has changed slightly over the last month with defensives starting to outperform the market,” read their memo.

“Sectors like healthcare and consumer staples, along with utilities, have performed well against a backdrop of higher uncertainty around the US Fed’s and RBA’s hiking expectations and the impact this will have on the economy.”

The team is forecasting inflation will cool off by the end of the year, but the outlook on rates and bond yields remain “murky”.

All this has led to a preference for “defensive growth” ASX shares.

“With the market concern on global economic growth due to China’s COVID lockdowns, the Russia/Ukraine conflict and a period of aggressive hiking from the US Fed, we think it is sensible to have an above-average allocation to defensives,” the memo read.

“Our picks are healthcare, insurance and telco.”

Specifically, Wilsons names these four stocks as fitting the bill:

• CSL Limited (ASX: CSL)
• Insurance Australia Group Ltd (ASX: IAG)
• Telstra Corporation Ltd (ASX: TLS)
• Healthco Healthcare and Wellness REIT (ASX: HCW)

The team is still staying away from the more adventurous growth shares, like in the technology sector.

“We believe that the next couple of months will continue to be an edgy period for markets as rates rise,” read the memo.

“We think a barbell tilt towards both cyclical/value and defensives is sensible. We are looking for more clarity from central banks and a more benign outlook for bond yields to rotate back to growth.”

The post 4 ‘defensive growth’ ASX shares to buy in turbulent times: Wilsons appeared first on The Motley Fool Australia.

More reading

• The CSL share price has tumbled 8% this year. Here’s why these top brokers still have faith
• 2 strong blue chip ASX 200 shares to buy after the market selloff according to analysts
• Does IAG have a dividend reinvestment plan?
• Broker names 3 ‘champion’ ASX 200 shares to buy and hold
• Could these 3 ASX dividend shares still beat the piggybank if rates hit 2.5%?

Motley Fool contributor Tony Yoo has positions in CSL Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL Ltd. The Motley Fool Australia has positions in and has recommended Insurance Australia Group Limited and Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/YsmTNGr